FCA Says Banks Could Face £9 Billion Bill on Car Loans
The cost of the redress scheme could plausibly be as high as £18 billion but a lower figure was more likely, according to a press release by the FCA on Sunday. The announcement comes after the UK's top court handed a big boost to banks on Friday, overruling lower court judgments and reducing the amount they will need to pay out in compensation.
'Any redress scheme must be fair to consumers who have lost out and ensure the integrity of the motor finance market, so it works well for future consumers,' the FCA said in the statement. 'We will publish the consultation by early October and finalise any scheme in time for people to start receiving compensation next year.'
While the Supreme Court's judgment will see banks avoid the enormous payouts many had feared, they still face having to pay out some compensation. Many of the UK's biggest lenders, including Lloyds Banking Group Plc and Banco Santander SA, have provisioned for potential losses.
American Depositary Receipts of lenders like Lloyds and Close Brother Group Plc soared in value after the judgment was handed down on Friday.
The full extent of the losses that banks will face as a result of hidden commissions in car finance arrangements won't be clear until the redress scheme is finalized, but fears of a PPI style compensation scheme have been allayed by the Supreme Court's judgment.
Three rulings by the Court of Appeal were the subject of the decision on Friday, with two of them overturned on appeal in favor of the banks. The Supreme Court did say that in one of the cases a customer had been treated unfairly by the lender, FirstRand Ltd., and that will help shape the regulator's redress scheme.
'The Supreme Court agreed with several factors we had identified which could point towards an unfair relationship and fall foul of the Consumer Credit Act,' the FCA said in it's statement. 'This clarity helps us because we have been looking at what is unfair and, prior to this judgment, there were different interpretations of the law coming from different courts.'
(Updates with more details)
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